Audit Finds Tiny Missouri Hospital Served As ‘Shell’ For $90 Million Billing Scheme

This story was updated at 1:47 p.m. and at 3:36 p.m. to include comments from the Putnam County prosecuting attorney and a spokeswoman for Missouri Attorney General Josh Hawley.

What began as a routine audit of Putnam County took an extraordinary turn when Missouri state auditors uncovered what appears to be a massive, fraudulent billing scheme in tiny Unionville, Missouri’s lone hospital.

A report released Wednesday by Missouri State Auditor Nicole Galloway says that a private company hired to take over the financially strapped Putnam County Memorial Hospital arranged for more than $90 million in questionable lab billings by the hospital.

The private company, Florida-based Hospital Partners Inc., assumed management of the hospital last September after the husband-and-wife couple that had been running it resigned. Hospital Partners’ president, David L. Byrns, was named CEO of the hospital.

In the nearly 10-month period ending in May, the period covered by the audit, the hospital has received more than $90 million in insurance payments for lab work that was conducted at other hospitals around the country, according to Galloway’s audit report.

The vast majority of billings were for patients who had not been treated at Putnam County Memorial Hospital, the audit says. Instead, the hospital essentially acted as a shell company for other labs by submitting bills for their services and funneling the insurance payments through the hospital, according to the audit report.

The report is scathing in its criticism of the hospital’s board, which it says abdicated its oversight role and failed to adequately review the hospital’s management contracts.

“The decisions made by hospital management and the board are astounding in their irresponsibility and have the potential to negatively impact the hospital and the residents of Putnam County for years to come,” Galloway said in a statement.

Possible criminal activity

In an indication she believes the transactions could rise to the level of criminal activity, Galloway has turned over her findings to the Putnam County prosecuting attorney, the Missouri attorney general and the FBI, according to Gena Terlizzi, a spokeswoman for Galloway’s office.

Putnam County Prosecuting Attorney Tom Keedy said his office has begun an investigation into what happened at the hospital.

"We'll be requesting assistance through the Missouri Highway Patrol's criminal investigative branch and the FBI and any other agencies that will be available," he said.

Loree Anne Paradise, a spokeswoman for Missouri Attorney General Josh Hawley, said the audit report had been referred to the attorney general's public corruption unit, which is reviewing it.

Terlizzi said auditors only started examining the hospital’s finances after irregularities surfaced during a routinely scheduled audit of Putnam County. Five years ago, county voters approved $7.63 million in general obligation bonds to refinance a 2006 bond issue by the hospital and to convert a part of the hospital into a geriatric ward.

“Our staff was there for a routine audit of Putnam County,” Terlizzi said. “Staff saw numbers that looked a little bit unusual and started to dig in” to the hospital’s finances.

Putnam County Memorial Hospital opened in 1963 and has 15 acute-care inpatient beds. It’s what’s known as a critical access hospital, which is a federal designation aimed at bolstering the finances of rural hospitals. Unionville, the town where the hospital is located, is in northeast Missouri, about 150 miles from Kansas City, and has a population of about 1,800.

Other questionable payments

The audit uncovered other irregularities. According to Galloway’s report:

In the 10 months since he became CEO of the hospital, Byrns has paid more than $700,000 to Hospital Partners Inc., and paid himself an additional $200,000 in salary without board approval. He also received $5,000 in questionable expenses for items such as alcohol, cigarettes, car washes and golf outings.

The hospital paid the salaries of 33 phlebotomists around the country who shipped blood specimens to labs for testing, although none of them worked at Putnam County Memorial Hospital.

From November 2016 through February 2017, the hospital paid out more than $10.6 million in management fees to Hospital Lab Partners, a company affiliated with Hospital Partners Inc.

Records with the Florida secretary of state’s office show Hospital Partners was incorporated in December 2015 in Lighthouse Point, Florida. Byrns is listed as president and secretary and Jorge Perez as vice president and treasurer.

Attempts to reach Byrns were unsuccessful. The law firm that filed the incorporation papers, Spiegel & Utrera in Miami, did not return a phone call seeking comment.

According to his LinkedIn profile, Byrns has also served as CEO of Frontier Hospitals Inc., a Deerfield Beach, Florida-based hospital management company, since 2004. The profile says Byrns has a bachelor of science degree in accounting from the University of Louisville and a master’s degree in healthcare management from St. Thomas University.

A 2013 feature story in Becker’s Hospital Review about Byrns and Frontier Hospitals quoted him as saying he founded Frontier to protect rural hospitals and keep health care local.

According to Galloway’s audit report, Putnam County Memorial Hospital’s board contracted with Byrns and Hospital Partners without requesting formal bids or proposals from them.

“Board members indicated they conducted background checks and reference checks for the management companies; however, no documentation was retained of work performed and the extent of the reviews may have been basic internet searches,” the audit report states.

The management contract with Hospital Partners also contained an unusual provision: The hospital agreed to indemnify Hospital Partners and Byrns for any claims arising out of their management of the hospital.

“Such a clause leaves the Board and the hospital potentially liable for any fraudulent or negligent activity of the contractor, which would be unusual for a contract of this nature,” the audit report states. “The contract also omits basic financial terms defining how much the contractor is to be compensated.”

The audit says that while Galloway’s office was conducting its audit of the hospital, it was contacted by the fraud examiner of a private insurance company in Florida that had denied $700,000 in billings from Putnam County Memorial Hospital because of signs of fraud.

That investigator referred Galloway’s office to the fraud investigator for another insurance company, who said the company had denied up to $4.3 million in what it considered to be fraudulent claims from the hospital.

Dan Margolies is KCUR’s health editor. You can reach him on Twitter @DanMargolies.